Micro finance can help unleash untapped entrepreneurial talent
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Public funded programmes in India as in other developing countries are structurally rigid
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The focus has largely been on the number of micro finance institutions rather than on the quality aspect.
SUCCESSFUL SHG MODEL: Products of self-help groups on display at an exhibition. — Photo: K. Pichumani
THE MILLENNIUM Development Goals (MDGs) are probably the only `social concern' in the present globalised world. The first and the eighth items in the MDGs urge member countries of the United Nations to initiate programmes that help unleash the potential entrepreneurial talent latent in the poorer sections of the society.
Two recent documents from the United Nations also highlight initiatives on these lines.
Both reports highlight strategies of development at the local level where small and medium enterprises (SMEs) and the informal sector are regarded as employment generators and engines of growth. Such mainstreaming of the weaker links of the productive system is a major departure in economic theory and policy.
How can creativity of the otherwise resource - poor be unleashed? This is an ideologically sensitive question. Supply side economics propounds that provision of inputs and services will help the poor to empower themselves provided the so-called `social capital' is facilitated. The major inputs, according to this logic are credit and the so-called business development services. It is this approach and strategies that are being propagated in 2005, the International Year of Micro Credit.
The discussion on micro finance (a more inclusive term than `micro credit') in the context of MDG raises fundamental questions on the political economy of credit as such. Micro finance basically refers to small-scale financial services, in the form of credit and deposits, to smaller operators in various sectors of the economy. Does easy credit really empower the poorer sections of the society? If so, what are its logic and methods?
The logic of sustainable enterprise development is simple. In any economy, enterprise is atomic in character. Finance, which adequately addresses the needs of these enterprises at the same time, helps to unleash the productive forces as also the unlimited human capabilities. It is this unlimited capability that makes small enterprises an engine of growth even as the logic of economies of scale sometimes works against it.
Failure of directed credit
The tremendous success of micro credit programmes prompted governments to consider this as a new institutional structure. This change from the `state' to the `market' obviously implies a qualitative change. However, there still exists a demand-supply mismatch in the credit market. The publicly funded micro enterprise programmes in India as in other developing countries are structurally rigid and do not have the flexibility to adjust to the logic of an informal financing system. Most such public programmes are not sustainable because of this inherent rigidity
Two broad models of micro finance — SHG model and Grameen — have seen some healthy competition that has led to innovations. As such, micro finance services have got diversified over time into areas such as micro savings, micro insurance and several non-financial services. These obviously have helped improve the quality of life of the participants of this movement and offered new linkages among the various stakeholders. Initiatives in these areas are discussed in detail and the possibilities of innovation explored.
A major contribution of micro finance innovations is the social intermediation it has facilitated. In this process, the role of the government and of the private sector so far has not been significant. It is the third sector that has made the greatest contribution in this area. While the NGOs, started as non-profit organisations, offer financial services, this is not enough from the point of view of sustainable enterprise development. They need to intervene as major vehicles of vital skills for entrepreneurship development. For this, it is necessary to look at micro finance institutions from alternative rating criteria, such as professional skills, awareness and networking capabilities.
Training, technology base
Most micro finance institutions are run by conventional NGOs having very limited external orientation. Moreover, they demand a high order of professionalism which most NGOs lack. Interventions in this area, therefore, need to be at two levels: first, a distinctive policy for NGOs which are largely service providers is needed. Second, professional NGOs need to widen their base in terms of skills and infrastructure.
Two crucial features of the world's poor and those of India deserve careful attention from the point of view of achieving the Millennium Development Goals. First, poverty traps the future generation in a vicious circle, an escape from which is constrained by the limits imposed by globalisation. Second, most of the world's poor are self employed and are vulnerable to the forces of the market. These related propositions make it imperative to look at the question of poverty reduction as co-terminous with the problem of sustainable enterprise development. Since micro finance has an instrumental role in this process, it is vital to make this lubricant of the development machine more meaningful and appropriate to the needs of enterprise development. The thumb rule for micro finance and rural organisation in India should not be big numerical targets but the imperatives of enterprise development.
P. M. MATHEW
(Director, Institute of Small Enterprises and Development. He can be contacted at: director@isedonline.org or ised@md2.vsnl.net.in)
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